Creeping Privatization of Justice

posted by Jason Kilborn

Lauren's and Bob's recent posts brought to mind a theme that keeps cropping up in my teaching and research: public authorities increasingly offloading responsibility for important justice-related issues, especially consumer justice, to the private sector.

On the teaching side, I teach Civil Procedure, and that world is all abuzz with talk of a slew of recent Supreme Court and Court of Appeals opinions that have prioritized private arbitration over public adjudication of disputes (see, e.g., here and here). And this movement is afoot not only in the classic context of complex business disputes, where arbitration makes some sense; rather, it has taken hold in David-and-Goliath situations involving important rights like employment contracts and consumer sales and service contracts of a variety of kinds. In the big case that started the latest round of hoopla, AT&T Mobility v. Concepción, Justice Scalia acknowledges that "the times in which consumer contracts were anything other than adhesive are long past," yet he and the majority proceed to bend over backwards to ensure that clever company counsel can relegate disputes over such contracts to arbitration, effectively ensuring no suits will be brought in many cases, where the stakes are too low without aggregate (class) litigation, as in Concepción.

On the research side, virtually every discussion around the world of consumer insolvency reform begins from the premise that out-of-court workouts are to be preferred, and court-sanctioned payment plans and coercive discharge should be a last resort. Many world consumer insolvency regimes require consumers to engage in an informal workout negotiation as a mandatory prerequisite to seeking formal relief. The notion of private workouts in this context is like Communism: it sounds great in theory, but it just doesn't work out in practice. In the highly morally charged context of consumer workouts, creditors consistently refuse to offer any kind of relief from the inflated principal debt, and only limited relief from spiraling interest (sound familiar?).

What seems to work better is at least a kind of public-private partnership, or better yet a private process where some public actor plays a powerful facilitating role. As observed in the World Bank's new report on the treatment of individual insolvency (para 134), "The wish for voluntary settlements will not, however, be fulfilled automatically or by the order of the law; some institutional support and incentives are needed." The report goes on to mention the types of approaches that have enjoyed more success, such as when the Central Bank acts as an 800-pound gorilla, convicing creditors that it would be a great idea if they were to agree to plans a Bank representative concludes are reasonable (this is the situation in France, for example).

Farming out the delivery of justice to the private sector wholesale just seems to be a bad idea. But proper public oversight of private-sector function can be a nice compromise. As more countries consider reforms to their personal insolvency laws, I hope comparative lessons in effective public-private cooperation can make for a better approach than simply hoping for success. The recent Irish personal insolvency reform plan illustrates both the dangers of unsupervised capitulation to the private sector and the promise of comparative lessons for buttressing success with a bit of public-sector support.

Comments

Consumer arbitration has little to do with privatizing justice. It is mostly about obtaining enforceable judgments at lowest cost and zero practical due process, evading class-action litigation, evading jury trials, and obtaining structurally biased adjudicators for the few remaining live disputes.

I do make an exception for securities arbitration, which has always struck me as a reasonably fair process.

If you're looking for a settlement-mediation process that actually works, try insurance claims settlement. Companies that make a practice of acting like jerks in low-value claims are likely to get on regulatory shit-lists. Companies that act like jerks in high-value claims are likely to get slapped with superadded consequential damages. I'm not arguing that the insurance claims system is wonderful (unless you pay the high premiums associated with the few "if it's grey, we pay" insurers), but I do believe that it works better than consumer banking settlement.

I agree with Ebenezer, except I won't comment on securities arbitration because I'm a FINRA arbitrator and hardly unbiased. Private workouts don't work even in theory in consumer cases (If they did, there would be more honest companies companies offering consumer debt negotiation services instead of the mob of marginals we have.), and the "researchers" who are arguing otherwise are clueless, co-opted, or both. As Ebenezer writes, this is part of the ongoing corporate effort to block the courthouse doors, and I would add that it's being facilitated by a significant chunk of the judiciary gleefully undoing well over a century of precedent concerning concerning contract drafting presumptions (What was that you were saying about activist judges, Antonin?).

The question that OUGHT to be looked at is how much better courts are for consumers than arbitration is. The public law the courts are supposed to enforce may look better than the private law of the contracts consumers get stuck with, but that doesn't count for much if the courts are handing the corporate players work-arounds at every turn. Witness the rocket dockets for mortgage foreclosures in Florida. Or the rocket dockets for debt collections here in Utah, where the judges aren't concerned whether there is actually evidence of the debt, they just enter judgment. I'm reminded of the old saw that the US justice system was created to sort out disputes between banks and railroads, and the rest of us just have to live with it.

As for the insurance claim process, as with just about everything in consumer protection, it depends on the jurisdiction. In Washington State, which has some consumer protection laws with sharp fangs and claws, insurance companies bend over backward to avoid being charged with a bad faith denial of a claim. Threaten such a charge in a thoroughly consumer-hostile jurisdiction such as Utah, and they laugh in your face.

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